If you know that you need to get more from your Indirect Procurement (IP) but can’t see the wood for the trees, outsourcing all or part of your procurement operations is a great way to go.
A good quality third party is worth its weight in gold. They’ll perform a range of tasks, processes, operational procedures and strategy for you. It means you can get the best out of your entire IP or for certain categories – and reduce the burden on your teams in house.
Here are three routes we suggest you consider if you’re looking to outsource your indirect procurement.
Building a procurement function from the ground up is expensive and time consuming. And even if you do it well, there’s no guarantee that it’s sustainable or optimal. If you’re in that position – or if you have a small team that could use some extra support – outsourcing your IP is both cost-effective, and an efficient use of resource.
When you outsource your IP, the strategy and operations are managed for you, ensuring that they’re constantly monitored, reviewed and refined – meaning you get optimal procurement performance at a fraction of the price of a small team. What’s more, you free valuable time for the executives currently responsible for managing your IP – allowing them to concentrate on core activities.
So what can you expect? Generally speaking, most consultancies (to whom you outsource) will carry out an audit assessing your current situation. That will identify where you are leaking money, time and missing opportunities for improvement. It will show you how and where you are spending your money, with whom and how often. It will also show you where your suppliers are under or over performing, and how you can leverage that to increase efficiency, flexibility and agility.
Once you’ve gained that insight, they’ll work alongside you to develop a path forward, some KPIs and some benchmarks that will allow you to regain control of your resource and use it more effectively. Quite often, the savings and value generated in the first few months will offset against the cost of the outsourcing – making it a win-win for all concerned.
Use expertise to optimise specific categories
When you pay for your Indirect Procurement to be outsourced – any part – you are essentially paying for expertise. That will either be expertise you don’t have in-house, or it will be expertise that complements or bolts onto the existing skillset you have in place.
Either way, many organisations choose to leverage this expertise against single or multiple categories of spend. These will typically be categories that are problematic, have legacy issues or that need special attention because they are draining time, money and person power that could be better used elsewhere.
When you look at outsourcing specific categories it is important that you look at the long-term benefits of doing so and what your business drivers are over that period. Getting those in place tends to lead to a better overall outcome when engaging with a third-party.
It also means that you will only outsource categories where doing so offers clear value. Moreover, it gives the third party a clear and precise understanding of how they can unlock value specific to your organisation and its goals.
Deciding what categories to outsource is a matter of strategic importance – so it may be that you outsource a category that has a distinctive source of competitive advantage. Equally, it may be that outsourcing a certain category may create unacceptable risk to the business – and therefore giving it more attention in-house by outsourcing another is the best route forward.
Go for the gold
The eminently wise Peter Drucker once said that businesses should focus on what they do best and “outsource the rest.” Arguably no truer words have been said in respect of focusing on your core activities.
In respect of procurement, it’s a sound argument too –procurement is after all a specialism; and if you can actually gain value, reduce cost and have a business function optimised on your behalf, then there are few downsides to handing it over to a third party.
The reality for a lot of companies is that procurement is time consuming and sub-optimal. It is a cost-centre that also takes a reasonable amount of time to do well – time that could otherwise be used on improving your core business offering.
If you’re on the fence, think of it this way: if you’re using expertise, you’re using someone that focuses solely on the service you need, day in day out. They have years of experience and the ability to complete tasks effectively at a fraction of the cost of an FTE – which is presumably what most organisations set out to achieve in the first place.
So the bottom line is – hire someone to do what they do best, so that you can do what you do best, without distraction.